Morning Market Brief: May 8, 2024

Positive signs for Europe’s economy?

Amid tight financial conditions, Europe’s economy has struggled, posting little growth over 2023 and falling into a technical recession in the fourth quarter of 2023. However, recent data might be suggesting the economy is stabilizing, and that it could be reignited further if the European Central Bank (ECB) begins lowering interest rates.?

• Retail sales in Europe surged higher by 0.8% in March over the previous month. This marked a rebound from the 0.3% decline in February. On a year-over-year basis, retail sales increased by 0.7% in March, their first annual increase in more than a year.
• This marked the largest monthly jump in retail sales since September 2022. March’s increase was spurred on by a rise in sales for automotive fuel, along with food, alcohol and tobacco. Spending on non-food products stalled in March, posting no growth (0.0%).
• March’s result could be a signal of improving economic conditions in Europe, and better consumer confidence. While elevated inflation lingers, it has come down substantially from record high levels, which could have the ECB lowering interest rates as early as June.
• An advanced estimate from late April showed the European economy expanding by 0.3% in the first quarter, its first quarterly growth since the second quarter of 2023, and highest since the third quarter of 2022.
• Europe is an important trade partner to Canada. Any rise in demand in Europe from consumers and businesses could help lift Canadian exports to the region, ultimately helping Canada’s overall economic health.

Despite ongoing challenges brought on by tight financial conditions, Europe’s economy has shown signs of stabilizing in recent months. A strong Europe is critical for the health of the global economy. A period of loosening monetary policy could also help stimulate economic conditions in Europe.

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